Forecast Disagreement about Firm-level Profitability and Uncertainty

27 Pages Posted: 6 Mar 2024 Last revised: 16 Apr 2024

See all articles by Seohyun Lee

Seohyun Lee

KDI School of Public Policy and Management

Date Written: February 27, 2024


This paper proposes a measure for firm-level uncertainty using forecast disagreement among financial analysts in South Korea for the period between 2003Q1 and 2019Q4. I find that, at the aggregate level, the disagreement measure of uncertainty is positively correlated with the Economic Policy Uncertainty (EPU) and negatively correlated with GDP growth, both with lags. To investigate the real option channel of uncertainty, the impact of firm-level uncertainty on investment is estimated, controlling for firm-level first-moment shocks and financial conditions. The results suggest that the firm-level disagreement measure of uncertainty adversely affects the investment and such effects are more severe for firms with high levels of irreversible investments. There is empirical evidence suggesting that the impacts on other real activities are consistent with the real option theory—sales, employment and investment in R&D are discouraged by uncertainty shocks. Financial decisions of firms are affected by firm-level uncertainty shocks—firms reduce debt and increase payout when faced by higher uncertainty.

Keywords: Firm-level uncertainty, Disagreement, Investment, Dividend

JEL Classification: E22, D84

Suggested Citation

Lee, Seohyun, Forecast Disagreement about Firm-level Profitability and Uncertainty (February 27, 2024). KDI School of Pub Policy & Management Paper No. 24-02, Available at SSRN: or

Seohyun Lee (Contact Author)

KDI School of Public Policy and Management ( email )

P.O. Box 184
Seoul, 130-868
Korea, Republic of (South Korea)

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